Fitch Affirms the Ratings of Echostar Communications Corporation.

CHICAGO -- Fitch Ratings has affirmed the 'BB-' issuer default rating (IDR) and the Stable Rating Outlook assigned to Echostar Communications Corporation (Echostar). Fitch has also affirmed the 'BB-' rating assigned to the senior unsecured notes issued by Echostar's wholly owned subsidiary Echostar DBS Corporation. Finally, Fitch has affirmed the 'B' rating assigned to the convertible subordinated notes issued by Echostar. Approximately $5.9 billion of debt as of the end of the third quarter is affected by Fitch's action.

Fitch's ratings reflect the company's size and scale as the third largest multichannel video programming distributor in the country, the company's solid liquidity position as evidenced by nearly $1.6 billion of cash and marketable securities on its balance sheet at the end of the third quarter of 2005, and improving credit protection metrics. Additionally the ratings incorporate Fitch's expectation for continued EBITDA growth and free cash flow generation. A risk to Echostar's credit profile is uncertainty related to the expected use of material amounts of cash on the company's balance sheet as well as expected free cash flow.

Balanced against these attributes, the ratings also consider the company's lack of revenue and service diversity, and the increasing business risks connected to Echostar's credit profile stemming from the intense competition for subscriber market share with cable MSOs and other direct broadcast satellite providers. Fitch expects the competition for subscriber market share to intensify as the RBOCs introduce video services. Moreover the ratings also reflect Echostar's weak competitive position, from Fitch's perspective, to respond to the changing and riskier operating environment that highlights the importance of a bundle of services. Relative to the cable and telephone companies, Echostar lacks the revenue and service diversity enjoyed by the other industry participants. Fitch considers this narrow product focus, resultant from the limitations inherent in Echostar's satellite infrastructure, to be a competitive disadvantage, which will constrain Echostar's ability to generate revenue and cash flow growth. Fitch believes that the services offered by the cable MSOs and the telephone companies in the residential markets will converge leaving Echostar's market share vulnerable to competition. Absent material investment in upgraded technology at the satellite infrastructure and customer premise equipment levels, Fitch believes that these factors will continue to erode the company's longer term competitive position.

Key to Fitch's expectation of EBITDA and free cash flow growth will be how the company balances subscriber growth with controlling subscriber churn, subscriber acquisition and retention costs, and subscriber cash flow in an increasingly competitive market. Through the nine months ended Sept. 30, 2005, subscriber acquisition costs (SAC) on an absolute basis has increased approximately 9.7% relative to the first nine months of 2004 while SAC per gross addition has increased 11.0% during the same timeframe. Factors driving the increase include lower cobranded subscribers added (primarily through the company's arrangement with SBC). Additionally, new subscribers are taking more advanced services such as digital video recorders and high definition service. These services increase the equipment costs associated with the new subscriber as well as the installation costs due to the increased complexity of the configuration. Fitch expects that the competitive pressure will likely result in higher subscriber acquisition costs and higher churn for Echostar, which in Fitch's estimation will erode subscriber profitability and hinder free cash flow generation.

In an effort to enhance its competitive position, Echostar will need to increase the level of its HD programming including offering local channels in HD. However, to accomplish this, Echostar must take steps to increase its overall bandwidth capacity, which may expose the company to some technology and obsolescence risks. Echostar is launching a new satellite (Echostar X: expected to be launched during the first half of 2006) and introducing satellite receivers with MPEG-4 technology. Both of these initiatives will improve the company's bandwidth capacity. However, depending on the ramp up of customer demand for HD programming the MPEG-4, satellite receivers can materially increase SAC and subscriber retention costs, negatively affecting the company's free cash flow generation.

Echostar's liquidity position is primarily supported by approximately $1.59 billion of restricted and unrestricted cash and marketable investment securities on its balance sheet as of Sept. 30, 2005. Fitch believes that the company's liquidity position is adequate, especially when considering the nominal amount of scheduled maturities through 2007 and Fitch's free cash flow expectations. Fitch points out that the company has approximately $2.5 billion of scheduled maturities in 2008, which presents refinancing risk to the company. Fitch notes that Echostar's financial policies, namely more aggressive share repurchases or a large dividend payment, could quickly erode the company's liquidity profile since the company does not maintain alternate sources of liquidity. During the third quarter of 2004, the company's board of directors approved a $1.0 billion share repurchase program. As of the year-to-date period ending Oct. 31, 2005, the company had repurchased approximately 7.0 million shares of its class A common stock for approximately $200.5 million. Fitch believes that a significant portion of free cash flow will be utilized for share repurchases or other shareholder friendly actions.

Fitch expects that Echostar will continue to capitalize the operating leverage realized during 2005, which will drive improvement of the company's credit protection metrics. Fitch anticipates that during 2006 the company will continue to grow EBITDA. However, free cash flow levels are expected to be consistent with 2005 free cash flow levels. Fitch expects leverage (adjusted for capitalized SAC) to improve to approximately 5.0 times (x) by year-end 2005 and approach 4.3x by the end of 2006.

The 'B' rating assigned to Echostar's subordinated convertible notes reflects the structural subordination of the notes to the senior notes issued by EDBS and the diminished recovery prospects of the convertible notes relative to the senior notes.

Echostar's Stable Rating Outlook reflects the consistent subscriber economic trends and the positive EBITDA and free cash flow prospects expected during 2005 and 2006, balanced with the very competitive operating environment. Outside of the announced share repurchase authorization, Fitch views the use of cash for shareholder-friendly actions as an erosion of financial flexibility that could result in pressure on the ratings or a Rating Outlook revision.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, 'www.fitchratings.com'. Published ratings, criteria, and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance, and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site. The issuer did not participate in the rating process other than through the medium of its public disclosure.